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In order to avoid disappointing investors and guarantee continued access to capital, the reinsurance and insurance-linked securities (ILS) industry needs to escape the market-cycle mindset and deal with the biggest threat it faces, which is inertia, according to Chris McKeown of Vantage Risk.

McKeown is the Chief Executive for Reinsurance, Partnership Capital, and Innovation at growth company Vantage Risk. He spoke with us around the 2024 Monte Carlo Rendez-Vous event, to share his views on current market conditions and the importance of staying disciplined in reinsurance.

His role encompasses Specialty and Property Reinsurance and the AdVantage offering, which is a collateralized re/insurer focused on partnership capital. So McKeown is well-placed to speak to the evolving industry dynamic as the year-end discussions begin.

With returns currently elevated for both reinsurers and ILS strategies, McKeown discussed why that is and his hope that the industry doesn’t become complacent, or let standards slip, to risk sliding back into old habits of allowing risk-adjusted returns in the market to decline too far.

McKeown told Artemis, “A good year doesn’t prove the thesis that we’re now in a sustainable marketplace and guarantee continued access to capital. Letting our long-term focus fall to the wayside will be our undoing.

“With economic inflation, social inflation across verdicts and settlements, putting more value in front of risks, climate… Now is not the time to fall into a habitual disposition.

“The market needs to maintain the level of risk-adjusted returns in order to grow. And we all should want the market to grow.”

Adding that, “There is still work to be done in many geographies, and for many perils, but the hard work achieved to recognise the trends in the major and secondary perils in the US will hopefully persist into 2025; pulling back to less than stellar terms now would be folly.

“For now, the industry has achieved a reasonable balance between supply and demand. However, this is a delicate balance, given evolving risks and structural constraints.”

Asked what he foresees as the biggest challenge for reinsurance and ILS markets, McKeown suggested it is falling back to old habits and failing to move forwards and innovate.

“Inertia is the biggest threat to our industry today, Steve. We need to escape the gravitational pull of the conventional, market-cycle mindset,” he explained.

“That said, we’re controlling the narrative better as a market.

“The property cat marketplace required a correction of radical measure in 2023 due to years of ignoring trends in inflation, demographics, values, and retrospective pricing.

“We have, as risk capital providers, successfully re-set the market to a more sustainably profitable level.”

He went on to highlight how this re-set in reinsurance pricing and terms has enabled the industry to achieve the stellar returns of the last year or more.

While, so far in 2024, largely stable pricing has been experienced by reinsurance and ILS capital providers and the catastrophe bond market has set new records.

But McKeown questions some of the reinsurance industry’s long-held beliefs, around the inevitability of the pendulum swinging back to a softening market environment.

“There’s an archaic belief that the large swings in market cycles are inevitable and we’re powerless to do anything,” he explained.

Continuing to say that, “If so, we are bound to under-impress investors and not achieve consistent access to capital.”

McKeown further said that, as an industry, “We must continuously challenge our ingrained thinking and prove that this is a viable market.

“The threat is that our hard-earned confidence from 2023 turns into hubris, or worse inaction, and we’re blinded to the apple cart tipping in slow motion.”

McKeown then discussed the need for more capital to support the industry and we asked him what could tip the cart?

He said, “I think it is akin to market psychology.

“Firstly, from a structural standpoint, we’d do well to continue to find ways of bringing more, and more efficient capital, into our industry to improve our relevance in a rapidly evolving risk landscape, whether due to changing exposures or climatology.

“That leads to my second point, let’s acknowledge that changing exposures are a bigger driver of loss today than climate, currently. As a society, we’re continuing to stack more value in the way of storms, earthquakes, and fires than ever before.”

Going on to explain, “The total value of the U.S. housing market doubled in the last decade and is now worth $52 trillion. We’re building new housing units in risky places, ~580,000 in Florida and ~370,000 in California from 2020 to 2023. All new builds in Florida are hurricane exposed and new builds in California are increasingly wildfire exposed. Once we control for increasing housing values, construction costs and population (which is a data issue – collecting better, more timely information), climate is the next biggest source of uncertainty for natural catastrophe losses. We know a warmer climate introduces volatility and the prospect of increased severity and frequency looms large.”

McKeown then acknowledged that inputs from outside the industry are also influencing the market, especially in terms of how capital flows occur, again reiterating that the market needs to deliver on capital provider expectations.

“We’re in a floating rate business. The industry lives and breathes the general economic cycle in returns on assets. And we’re also an essential good, so, historically anyway, largely recession and depression proof. No matter the economy, people and businesses need to mitigate risks,” he told us.

“It’s prudent for us to be aware of broad conditions but let’s focus on risk adjusted returns that keep the industry reasonably profitable. We must keep an eagle-eye on rate adequacy.

“That said, being on our toes keeps us agile and driven to forge a healthy, resilient market. Constraints are often the genesis for creativity.”

Concluding this part of our interview by saying, “Collectively, we must continue innovating to attract sufficient capital and meet tomorrow’s risks.”

Read all of our interviews with ILS market and reinsurance sector professionals here.

Inertia the biggest threat. We must escape the market-cycle mindset: McKeown, Vantage was published by: www.Artemis.bm
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The outstanding market for collateralized reinsurance sidecar structures has reached a new record high of $10 billion in 2024, which represents roughly 40% growth on the prior year, Aon Securities estimates.

Aon Securities, the insurance-linked securities (ILS) and investment banking arm of the global insurance and reinsurance broker, notes that the new issue reinsurance sidecar market has continued its “re-emergence” with investors looking to support property portfolios, as well as newer structures backing casualty risks.

These quota share structures are seen as an aligned way to support a reinsurer, sharing in its underwriting profits and losses, without any of the exposure to business and corporate risk that might come with an equity or private equity investment.

Hence, in a lot of cases, the backers of sidecars are private equity like investors, although institutional allocators such as pensions, endowments and family offices are equally as prevalent in the sidecar market, especially in fund structures that allocate to multiple private sidecar quota share arrangements.

Previously, Aon had noted that it estimated over $1 billion of new capital has entered this proportional collateralized reinsurance sidecar market in the last year.

Now, the Aon Securities unit has provided a clearer view of the size of the sidecar marketplace, putting it at around the $10 billion level, in terms of sidecar capital outstanding, a new record high as of the middle of 2024.

It represents growth in sidecar risk capital of around 40% over the last year, which outpaces the catastrophe bond market.

Reinsurance sidecars had reached $8.4 billion in capital outstanding right back in 2015, which was the previous high for this part of the collateralized and ILS market.

But sidecar investors were badly affected by the catastrophe losses experienced through 2017 to 2019 and the looser terms around sidecar structures meant the trapping of collateral was also particularly impactful to them.

Sidecars tended to come with buffer loss table clauses that favoured the sponsors and made it very easy for capital and collateral to get trapped, even where losses were deemed relatively unlikely.

The terms and conditions around collateralized reinsurance sidecars were updated in the years following, but it has taken time for investors to get comfortable with the new terms, and now we are beginning to see the effects of this hard work from structuring and legal teams.

Aon Securities also notes that, “Growth of the sidecar market was facilitated by the return of past ILS investors who waited out the soft market cycle and new investors attracted by heightened returns.”

The company further explained, “Higher potential returns in property sidecars have been driven by historically elevated premium rates, more remote attachment levels for underlying treaties, and narrowed coverage definitions.

“Importantly, the property sidecar cycle is being driven not only by reinsurance portfolios but also insurance portfolios. Insurers are looking to sidecars as a source of proportional reinsurance to address the increased earnings volatility from higher excess of loss retentions.”

That is an important distinction.

Many of the reinsurance sidecar investments that resulted in challenging loss and trapped capital situations were retrocessional quota share structures.

The reinsurance quota shares, for primary insurers, tend to have been structured in a way that is more aligned between the protection buyer and capital provider, which is understandable given these are often seen as growth capital by their sponsors, rather than a risk transfer vehicle.

Aon Securities also highlighted the growth of casualty sidecar transactions, saying, “Casualty sidecars have also developed as the combination of improved casualty insurance pricing, higher interest rates, and substantial risk spreads for private credit instruments make these structures possible.

“Investors are seeking structures which provide long-dated investment float to manage within their asset management platforms. This dynamic has allowed (re)insurers to negotiate attractive cession terms to supplement their traditional coverage.”

It’s worth noting that other data sources are not quite as bullish on the size of the sidecar market. While recognising growth and a resurgence, the latest data from AM Best and Guy Carpenter put the reinsurance sidecar market at between $6 billion and $8 billion, although recognising it could be nearer the upper-end of that range.

Find details of numerous reinsurance sidecar investments and transactions in our directory of collateralized reinsurance sidecars transactions.

Reinsurance sidecar market estimated at record $10bn in 2024: Aon Securities was published by: www.Artemis.bm
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According to reinsurance broker Guy Carpenter’s Global Specialties division, there is an expectation more non-marine retrocessional capital and capacity comes to market through the end of year, which could impact supply-demand dynamics and cost of coverage.

Commenting on property retrocession market conditions today around the Monte Carlo RVS, Guy Carpenter said that Q2 2024 saw “a significant increase in demand for peak peril retrocession (retro) coverage and cat on direct and facultative (D&F) limit.”

While, “Demand for retro XoL coverage increased following the April 1 renewals, driven by appetite from buyers at January 1 for peak peril retro top- up limit and new buyers looking to re-enter the market.”

The market remains narrow for lower-level retro coverage, “but brokers are keen to get more reinsurers back into that space,” Guy Carpenter’s team said.

Commenting on the quota share market, GC said results have been strong.

“Results in quota share have been strong, so more markets are willing to deploy capacity on a quota share basis. However, in the retro space, there is still more demand than supply for quota share capacity,” the reinsurance broker explained.

The rest of the hurricane season will influence the end of year renewals, but already there is an expectation of more capital being available to support retrocession deals at the January 2025 renewals.

“There is currently sufficient capital in the market to meet demand, but more is likely to be deployed, which will impact overall cost and supply dynamics,” Guy Carpenter said.

Adding, “Attachment points are expected to be as prominent in renewal discussions as price.”

“Clients buying a material amount of capacity should be assessing as many pools of capital as they can – traditional reinsurers, ILS reinsurers for occurrence and aggregate, as well as quota share and cat bonds or looking at index products,” explained John Fletcher, CEO, Bermuda.

“As with previous renewals, Guy Carpenter advocates accessing multiple pools of risk capital. As we approach the renewals, we anticipate that clients will have a greater choice of who they want to trade with,” added Richard Morgan, Head of Non-Marine Specialties.

More retro capital expected, will impact cost & supply-demand dynamic: GC was published by: www.Artemis.bm
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Speaking this morning at the 2024 Monte Carlo Rendez-Vous event, executives from Fitch Ratings said that with further improvements in fundamentals less likely now, moderate and gradual softening is now expected for property catastrophe rates and pricing.

Manuel Arrivé, CFA, Head of EMEA Reinsurance Ratings at Fitch, explained that the reinsurance market has reached the peak of the current hard market cycle, absent some kind of disruptive loss event occurring, or other influencing factors.

He said that, “The sector is currently in a very good shape, with very strong capitalization, very strong financial performance by historical standards, and we expect, we expect both balance sheet and profitability to remain resilient in 2025 but further improvements in fundamentals from this point are less likely.

“We believe the cycle has most likely passed its peak, but the market condition should remain broadly favorable and supportive of strong returns.”

Going on to say, “On the positive side, we expect a disciplined market with rate adequacy and strict terms and conditions holding firm, despite increasing competitive pressures.”

Increased demand is also expected, while capital supply is likely to remain largely driven by alternative capital sources, so significant increases in reinsurance sector capital are not anticipated.

Arrive said, “Capital has been growing faster than demand, closing the gap in property cat for for example, and this has a stabilising effect on prices.”

He went on to say, “On the negative side, the market is moderately softening, with risk adjusted prices declining from multi-year highs due to high competition, mitigated by underwriting discipline that we expect to be maintained.”

Adding, “Looking forward in property cat, our base case is for moderate and gradual softening of prices, but rates should remain adequate and importantly, the types of terms and conditions that were agreed in 2023 should hold.

“Of course, reinsurers would like rates to stay higher for longer, but it looks like that they’re more open to negotiation on prices rather than structures, because at the moment, structures is more meaningful for profitability.

“We think the favorable market condition are not going to end abruptly, even if loss experience remain benign for the rest of 2024”

Highlighting that, with this backdrop, reinsurance returns are expected to remain very attractive in 2025, Arrive said, “We expect market conditions to remain supportive of strong risk adjusted returns in 2025 in this context.

“We forecast flat to modestly declining margins in 2025 but we are still at very attractive levels of combined ratios around 90% and if you add a stable contribution from investment income, that would translate in a return-on-equity of around 20% for the industry.”

Moderate and gradual softening expected in property cat reinsurance: Fitch was published by: www.Artemis.bm
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A poll undertaken just in advance of the 2024 Monte Carlo Rendez-Vous event by our sister publication Reinsurance News has found that market participants will be especially focused on sustaining prices in their discussions with clients at the event.

Reinsurance News polled its 130,000+ strong LinkedIn following and asked what the focus of their conversations at the RVS event will be this year.

The largest share, 38% of respondents to the poll, said that sustaining price levels will be the main focus for their early discussions that tend to set the tone for the end of year reinsurance renewal season.

Perhaps unsurprisingly, the next most popular option was achieving stability in attachment points and terms and conditions, which means those all-important contract features are going to be widely discussed in the Monte Carlo discussions this year.

Depending on who we talk to, our contacts all agree these are the two most important topics of conversation, but there are some that feel the attachments and terms are perhaps even more important than price.

In fact, at some of the reinsurance broker briefings held in advance of this year’s RVS, these contract features were highlighted as what might prove more sticky for the January 2025 renewal season and beyond.

The survey findings are aligned with those of rating agency Moody’s recent annual survey of global property & casualty reinsurance buyers, as most said they anticipate prices remaining stable or to even increase slightly in 2025.

Another popular answer in the Reinsurance News poll was around the continued growth opportunities that are being seen in reinsurance.

24% answered that responding to rising demand will be their main focus at the RVS event, while another 14% said broadening their portfolios in response to opportunities would be their goal.

Brokers have been vocal in pushing for contract term and price improvements for clients, while some such as Aon are hoping reinsurers will be more accommodating when it comes to taking back some of the frequency and sideways risk their clients have been absorbing over the last couple of years of the hard market.

Aon has also highlighted an expectation of the most competitive areas of the market potentially being higher-layers of property catastrophe risk, where the catastrophe bond market and many insurance-linked securities (ILS) managers are most prolific in deploying their capacity.

While market sources expect there will be some give and take on the two top answers to the Reinsurance News poll, price and coverage terms, some suggest it could be a case of a trade-off between the two this year at the renewals.

Whenever this happens we can expect some challenging and perhaps protracted negotiations as the year progresses, as well as a potentially late renewal completion as cedents look to secure the best solutions for their reinsurance for calendar year 2025.

Reinsurance market focused on price sustainability at the RVS in Monte Carlo: Poll was published by: www.Artemis.bm
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There is rising interest in catastrophe bonds from potential sponsors and the parametric risk transfer space is another area seeing growing momentum, according to Mike Van Slooten, Head of Business Intelligence at Aon’s Reinsurance Solutions.

Speaking during a briefing held just in advance of the 2024 Monte Carlo Rendez-Vous event, Van Slooten provided an update on reinsurance capital levels and key areas where it is responding to client needs.

After reiterating Aon’s calls for reinsurance capital providers to be supportive of clients needs and to lean in to risk, Van Slooten singled out catastrophe bonds and parametric risk transfer as two areas where client demand is rising.

“The first is the recent growth in alternative capital, which we estimate has now reached a new high of $110 billion,” Van Slooten said. Adding that, “The bulk of that of that growth has been driven by new inflows to the catastrophe bond market.”

He further explained that, “On the property side, new issuance is exceeding the record level seen in 2023 and we have reason to believe this will continue, given the growing interest from potential sponsors.”

Then highlighted other opportunities in the cat bond market saying, “Government risk transfer transactions are just one area of increasing opportunity.

“We also see the range of coverages expanding with cyber showing significant potential.”

Moving on, Van Slooten said, “The second area I wanted to touch on is the growing momentum in parametric products, especially for heavily nat cat exposed risks.

“In short, we see core demand increasing materially, resulting in both an increased pipeline and more deals being transacted.”

Further stating that, “We also see signs of capital mobilising in support, in the form of new MGA’s and existing reinsurers and insurers forming new teams.

“This is a great example of the market reacting to growing client need for broader access to capital.”

Cat bond interest from potential sponsors rising, parametric momentum increasing: Van Slooten, Aon was published by: www.Artemis.bm
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The Demex Group, a risk analytics and intelligence company that facilitates climate and catastrophe peril parametric stop-loss reinsurance protection, has announced a $10.25 million funding raise to help it respond to growing demand for its innovative products.

The $10.25 million in funding has been raised through a Series A and previously closed SAFE round, led by Congruent Ventures and included Moxxie Ventures, MetaProp, and existing investor Blue Bear Capital.

Last year, The Demex Group raised $5 million to deliver its severe convective storm (SCS) and other secondary peril focused solution, Retained Climate Risk Reinsurance (RCR Re), to market.

Demex’s core offering is a parametric reinsurance solution for losses caused by severe convective storms, including tornadoes, thunderstorms, hail and wind.

At a time when coverage in the reinsurance market for the SCS peril has reduced and aggregate or sideways reinsurance limit is less available, Demex’s product offering can therefore fill a gap that is evident for many re/insurers.

Working with reinsurance brokers and reinsurance companies, Demex arranges parametric protection for losses above a specified threshold.

The company says this business model is “resonating with customers as well as investors with $65M of reinsurance bound in the first selling season.”

“Growing losses from these storms are a critical problem for the insurance industry – challenging insurance companies’ annual earnings and balance sheet surpluses. We’re grateful to have investors who bring climate perspective, technology capabilities, a property mindset, and insurance experience to Demex,” commented Bill Clark, President and CEO of Demex.

“Insurance carriers are taking significant losses from high frequency events such as thunderstorms and have been digging into their surpluses for years,” added Abe Yokell, Co-Founder and Managing Partner of Congruent Ventures who led the round. “Reinsurers, too, have experienced higher than expected losses due to secondary perils. The Demex model – developed by a blue-chip team from industry heavyweights – quantifies risk and reduces deviation, which broadens reinsurance offerings and ultimately provides a stronger insurance industry for property owners.”

“Higher frequency extreme weather events, like severe convective storms, now cause more damage than the catastrophic events that are addressed by traditional reinsurance,” Hank Hattemer, Chief Operating Officer of Blue Bear Capital also said. “Each Demex insurer customer gets a reinsurance product that is precisely calibrated to how those weather events affect its business, tuned based on its own data. No other reinsurance product that I’m aware of works like this – it is a fundamentally new product and the market response has been overwhelmingly positive.”

Demex models loss accumulation based on weather and claims data, informed by climate research, to derive the parameters for the triggers underpinning it stop-loss reinsurance offering.

The company calls itself a “market-maker for a class of risk that is surpassing catastrophe losses,” adding that the SCS perils threaten “not only insurers’ annual earnings but also the sustainability of their businesses.”

Given the focus for the year-end reinsurance renewals for many insurers will be on negotiating and securing more coverage for the frequency risks they face, Demex’s parametric reinsurance solution could find itself facing continued demand.

Demex raises $10.25m as demand for parametric stop-loss reinsurance solution grows was published by: www.Artemis.bm
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Speaking during a briefing in advance of the 2024 Monte Carlo Rendez-Vous event today, executives from Aon’s Reinsurance Solutions highlighted their expectation that the higher layers of property catastrophe programs will be competitive at the renewals, with softening of rates expected.

Aon’s senior reinsurance executives reiterated the messaging we reported earlier, that they are looking for reinsurers to provide their clients more support with frequency and sideways type covers at the end of year renewals for January 1st 2025.

Andy Marcel, CEO of Aon’s Reinsurance Solutions highlighted the well-capitalised status of the market, with catastrophe bonds a key component in the tail and higher layers of property catastrophe programs.

“The returns in the reinsurance space have been very attractive and at record levels, and so people are looking to expand their position for their key clients in key market places,” Marcel explained.

Adding, “Given that we saw competition in the tail end of cat programs and the need for clients to gain more sideways protection, to take some more volatility, we expect it to be a fairly competitive renewal season, particularly in the tail end of cat programs, which is further fuelled by the robust nature of the cat bond market.”

Tracy Hatlestad, Head of Property Reinsurance, concurred, saying, “We definitely will see more competition in the tail.”

Hatlestad continued to explain why Aon believes this can be the case at the upcoming renewals, “I think the question about, can the industry handle a large loss? Obviously, you know what’s defined as large is different around the world, and we have a bit of hurricane season left to go. But even in Atlantic hurricane peril risk, there’s a differentiation between what a large loss is and what that would be, as far as a ceded perspective through the industry, given the fact that the FHCF in Florida provides so much coverage for kind of the middle stack of what could be a large event.”

She added that, “It’s a robust market, it’s a well rated market at the moment, and the industry could handle a large loss at this point, for sure.”

Concluding on renewal rates for property cat, “Current expectations, we expect rates to soften. Our maths suggest that’s the case. Historical experience suggests that’s the case, and obviously, reinsurer results of the last 18 months suggests that that’s possible.”

Aon’s Reinsurance Solutions team has set out an agenda to get the best for its clients at the renewal, in terms of enabling them to better protect themselves against some of the volatility they have experienced since the raising of attachments and the reduction in availability of aggregate coverage.

Which should make for an interesting, perhaps challenging and possibly late negotiated renewal season, which can have implications for the catastrophe bond market and insurance-linked securities (ILS) markets, as discussions on price and terms could come down to the wire.

The cat bond market has an opportunity here though, in being able to provide indications to broker-dealers early as to what the market appetite may be to take on more risk in aggregate form, as well as on their price expectations for those key upper layers, where cat bonds are increasingly providing robust, multi-year tail risk solutions.

Also read: Aon: Reinsurance capital should run towards risk, help on frequency / earnings protection.

Expect more competition in the tail, property cat rates to soften: Aon execs was published by: www.Artemis.bm
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New sponsors should continue to come to the catastrophe bond and insurance-linked securities (ILS) market through the remainder of 2024 and into 2025, while inflows of alternative capital are expected to continue, according to Guy Carpenter’s CEO of EMEA and Global Capital Solutions, Laurent Rousseau.

Speaking this afternoon during a Guy Carpenter briefing held just in advance of the 2024 Monte Carlo Rendez-Vous event, Rousseau explained that reinsurance industry capital levels remain high, but he thinks that this time the cycle is different.

He highlighted strong returns for reinsurers and ILS capital providers, with some of the growth in sector capital coming from profits earned from reinsurance and catastrophe bond portfolios.

“These strong returns should be leading to greater supply of capital and reinsurers’ willingness to deploy capacity when terms and conditions are met,” Rousseau explained.

He continued, “Reinsurers continue to be well capitalised. Like 2023, at mid year 2024 there were no new startups or reinsurers of significant size, and existing reinsurers had no need to raise additional capital.

“Having said that, existing reinsurers did continue to generate significant retained earnings, fuelled both by underwriting returns and investment returns.

“Guy Carpenter and AM Best’s joint projection for 2024 is for a 9% increase in dedicated reinsurance capital to $620 billion. Reinsurers and ILS capital providers continue to have solid return expectations.

“Based on investment banks analyst forecasts, GC estimates that the incumbent industry can generate just over $100 billion of new equity capital across 2023 to 2026 from retained earnings. We estimate this at about $36 billion based on 2023.”

Rousseau moved on to discuss the ILS market and how it is positioned for the rest of the year and into 2025.

Rousseau explained, “Catastrophe bonds, once again, had a record first-half of the year, with Q2 being the most active quarter recorded ever. By June 30th, 51 different cat bonds had been brought to the 144A market for approximately $12.2 billion in limit placed.

“This takes the total outstanding notional amount to more than $45.2 billion. Therefore, from mid-2023, to mid-2024, there was $3.3 billion, or about an 8% increase in limit placed.

“Accelerated sponsor demand has persisted. 46 unique cedents have entered the cat bond market since January 1st, nine of which are new sponsors. This is a record for the first half of the year.”

He went on to say that the cat bond market did experience some tightening during the busy period of issuance earlier this year, while at the same time some investors locked in record high year-to-date return gains they had made.

Explaining that, “As a result in the property sector, ILS supported transactions were slightly challenged amid somewhat lower than expected mid-year raises.”

Looking to the outlook for the pipeline, Rousseau said, “As we approach year-end, a heavy maturity schedule of cat bonds should drive continued increased issuance activity, although availability of capital will depend upon the results of the 2024 wind season.

“Additionally, the interest in ILS remains high with first-time sponsors, which we expect to continue in Q4 2024 and Q1 2025.”

Moving on to discuss how the reinsurance cycle has differed this time around, Rousseau highlighted that in the past new capital would enter the market in scale in response to higher pricing.

He highlighted that, “This cycle is different. Today, we see continued inflow of alternative capital, but not of new companies, as such, in a large scale.

“However, alternative capital inflows have been strong and should continue to remain so.”

Summing up, Rousseau noted that reinsurance capital should therefore prove ample to satisfy the protection needs of clients.

“Following previous cyclical behaviours, we anticipate this level of capital growth, if achieved, to not only absorb rising demand, but to also intensify competition in the sector,” Rousseau said.

Concluding importantly that, “However, that competition is not expected to erode underwriting discipline, which has bolstered the sector and upgraded its health.

“Instead, competition will take shape in terms of which reinsurers are best catering to the needs of cedents and ultimately, the consumer.”

As we reported earlier today, speaking at our Artemis London 2024 conference yesterday Rousseau explained that the cycle is going to be about differentiation and where reinsurers can best support their clients.

He said this could mean a continuation of competitive pricing trends, with prices coming down potentially “quite meaningfully in the higher part of the programs.”

Which sets the stage for how reinsurers might approach their discussions on end of year renewals, as well as cedents expectations for cat bond pricing.

New cat bond sponsor interest to continue in 2025, alternative capital to keep flowing: Rousseau, Guy Carpenter was published by: www.Artemis.bm
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At yesterday’s Artemis London 2024 conference speakers kicked off the busy reinsurance conferencing season, with a discussion of key issues that matter to insurance-linked securities (ILS) market participants as they head into events like the Monte Carlo Rendez-Vous and begin looking to end of year renewals.

Around 215 attendees joined the event over the course of the full-day conference, enjoying a busy day of inspiring and thought-provoking talks related to catastrophe bonds, insurance-linked securities (ILS) and opportunities for investors to deploy capital to areas of the reinsurance industry.

Each year we hold a session during this event titled Monte Carlo or Bust, where our expert speakers take a look at reinsurance conditions and debate the issues that matter to the ILS market as it heads to the RVS event and begins to think about the end of year renewal and issuance negotiations.

One short takeaway from this session yesterday is that speakers are anticipating a competitive reinsurance renewal at the end of this year, if the market avoids major losses over the remaining months of 2024.

The session was moderated by Bobby Dadra, Specialty Claims Manager, PCS, Verisk Insurance Solutions and he kicked things off by asking the participants for their views around price expectations for the January 2025 reinsurance renewals.

First to respond was Laurent Rousseau, CEO, EMEA and Global Capital Solutions, Guy Carpenter, who said, “Do we expect boom or bust? I’m afraid there’s going to be none of the two. In a nutshell, we’re in a cyclical industry, and there is not a lot of creativity around it. There is this kind of pendulum and cycle that is happening.

“We’re at the stage where reinsurers have been making very decent returns in 2023. 2024 is not over yet, but it’s looking good so far. But, the bottom line is, there is ample capacity, and the cycle is going to be far less about the bigger picture, it is going to be about differentiation. How do insurance companies make that case to the capacity providers?

“So that’s going to mean probably a continuation of the trends, ie competitive pricing. Some of them coming down quite meaningfully in the higher part of the programs. As you go down, clearly there will be a bit more moderation.

“But, by and large, there’s going to be very competitive pricing, and overall, probably coming down on the average.”

Rousseau highlighted the partnership with capital and that negotiations allow for give and take.

He said, “What we advise our clients to do as they come into Monte Carlo, of course there is a three months negotiation ahead, the question is, how do they position their programs into that cycle? It’s not about three, four months, it’s about three, four years. How do you enable growth? Growing is easy today. How do you do that while not unbalancing your portfolio? And I think, you know, reinsurers will want to take advantage of that cycle.”

Which set the tone for the discussion from the broking side.

Next to discuss pricing was Luca Albertini, Chief Executive Officer, Leadenhall Capital Partners LLP.

Albertini noted the importance of the role of insurance-linked securities (ILS) fund manager as custodian of capital.

“There is capacity, some of this capacity came through the cat bond market expanding beyond what was the original expectation. The question is, what is behind this capital? What are the expectations and what kept them in, for those who are in now, and what can attract them or make them go away, depending on what we do?,” he explained.

Albertini went on to say that, “At least on the ILS side, we feel very much under review. We have investors who have suffered and the current premium environment is the result of losses and underpricing that have been going on for for many years.

“For us, we are expected to price based on expected risk, right? Not what happened last last week or last month, but is what is the expected risk.

“That, in itself, not the event, should support the pricing, and the adequacy of the pricing is what will keep the capital that is coming in, and the the adequacy of the pricing is what will attract new capital going forward.

“For me, it’s very important that what we’ve been telling our investors, which is we learn the mistakes from the past and we want to make sure there is adequate pricing based on the expectation on the risk, is actually maintained.

“Because if we don’t, there could be a long term price to be paid. Then, at the end, the ceding company will pay more.”

Adding to the broker view of the upcoming end of year discussions and eventual negotiations, Nicky Payne, Partner, McGill and Partners, said she expects relative stability, but with some movement on terms and conditions.

Payne said, “Certainly, from where we’re sitting, we’ve not seen any kind of suggestions of any capacity withdrawing from the market, I think that’s really quite a key component. Supply and demand is such a driver of our markets.

“I think that our clients are looking for stability from ILS. I think it’s important to be part of those core discussions and and having consistent pricing is always very much appreciated by clients.

“I’m not sure that always ILS is viewed to be pricing on EL. You know that supply and demand dynamic, both from capital in the portfolios, or investor money going into the market obviously has an impact, and perhaps that’s felt quite strongly, or is more evident than it is in the traditional perspective.

“So I think our clients certainly want that continuity. They will be looking, probably, for some improvements in terms and conditions in the event of no big loss happening. I mean, it’s going to be a discussion, but it’s probably a bit too early to have that discussion.”

Finally, Niklaus Hilti, Head, Credit Suisse Insurance Linked Strategies, added his view from the capital provider side.

“We should not forget that hurricane season is not over, But let’s say, if we have a loss free hurricane season, I would see, of course, brokers and buyers having expectations,” Hilti explained.

He continued, “Yes, on the other hand side, I think that there might be actually, for what I believe is the first time, there is a potential that there is a bit a bifurcation on the reaction between ILS and reinsurance.

“ILS is very exposed on the cat side. So reinsurance has other topics as well. I think there is very significant capacity on the reinsurance side and I think we should not forget on the ILS side, there’s also maybe things which are different compared to reinsurance.

“There is a very close connection to investors, that is much closer, much more direct and visible between the investor and an ILS fund manager, compared to, let’s say, the shareholders of a reinsurance company.

“So I think that is different and my sense is the sentiment of investors is really that it needs more than one good year. So I think the pressure is there for ILS managers to stay very disciplined.

“On the reinsurance side I would not be, maybe, as optimistic that we will see the same reaction, or with the same discipline.”

That’s just the first few minutes of the hour long conversation and it highlighted the potential for a competitive reinsurance renewal, with perhaps differing approaches on capital deployment and discipline.

Some might say a bifurcation between the traditional and alternative response is reminiscent of the start of the last soft market.

When, despite the fact alternative capital was often cited as a cause of that softening, it was actually the large global reinsurers filling their portfolios before the last softening accelerated, that drove a significant proportion of the rate and term erosion we saw in the reinsurance marketplace, especially in some peak cat zones in the United States.

Are we heading for a similar situation? This time it seems many in the ILS market will not want to chase the market down. ILS managers are all too aware of the need to respect their capital and ensure it feels compensated for the risks it assumes.

Any return to the softening seen in the 2010’s would likely stimulate a negative response from investors that might reverberate around the industry for years to come, was the sentiment from the ILS manager and investor side at yesterday’s conference.

It’s going to be an interesting final few months of the year.

Artemis’ next conference will be ILS NYC 2025, in New York on February 7th. Please save the date, tickets will be on sale in the coming weeks.

Thank you to all our kind sponsors of Artemis London 2024, we value their support:

For any sponsorship enquiries for Artemis events please email us at events@artemis.bm.

Expect competitive renewal dynamics, but capital needs respecting: Artemis London 2024 was published by: www.Artemis.bm
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